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It's a New Day! With prices and sales softening, it’s easy to fall into the trap that we’re in a down market. Anyone who’s been there before knows this market is still a shining star.

After 35 years in sales, Michael Pruitt is always optimistic about the New Year. “I’m anticipating an improvement in the market in the first half of 2007,” says Pruitt, broker-owner, Pruitt Real Estate Inc. in Melbourne. “In single-family homes where sellers have become reasonable on pricing, we’re seeing a steady increase in new contracts, but the excess inventory from builders is holding the market back.”

From the Panhandle to the Keys, Florida real estate analysts and professionals have a mixed outlook on 2007. On the positive side, job creation remains strong throughout the state, mortgage rates are still low and more baby boomers are looking for second homes.

But those factors are counterbalanced by an oversupply of new condominiums and single-family homes in many markets, along with high sales prices, and rising property taxes and insurance premiums, especially in coastal areas. While builders around the state are cutting back on new home and condominium developments, there are still plenty of projects in the pipeline that will add to available housing inventory.

“Nationwide, this will be a fairly short and moderate market crash in those markets that became overheated,” says David Stiff, senior economist with FiServe CSW. “We expect this to bring affordability back in line.”

“In 2007, pricing will be the primary key to sales velocity with resales and new homes,” says analyst Lewis Goodkin, president of Goodkin Consulting in Miami. “It’s important to understand that the buyers are still out there looking for homes that provide good value.”

More Realistic Prices Rick Miller, a broker with RE/MAX Central Realty in Lake Mary, agrees. “I think the Central Florida market will become better in 2007 as sellers become more realistic about pricing,” he says. “I also see more sellers who realize the benefits of using a full-service real estate professional.” He says that now, more than ever, sellers are relying on the type of marketing and service they get from a Realtor®.

On a statewide basis, economist Hank Fishkind, president of Fishkind & Associates in Orlando, expects resale-closing volumes to decline about 25 percent compared with 2006. “But even as we move back from our recent highs, this is still a good market by historic terms,” he says.

Fishkind adds that there may be wide variations in Florida’s diverse regional markets. For instance, Orlando, Jacksonville and Tampa Bay are likely to lead the state’s comeback because of strong demand for primary homes. “Our state’s population growth has slowed only slightly, and that will help absorption of our single-family inventory,” he says. “Job creation won’t be as strong as the last two years, but Florida will still lead the nation.”

Second-Home Markets On the other hand, it will take time for South Florida—especially Miami and West Palm Beach—to absorb the new condominium units coming to market this year, Goodkin says. And second-home markets, like the Treasure Coast, Panhandle and Sarasota, may face relatively slow activity until these discretionary buyers return to the market.

However, according to Richard J. DeKaser, chief economist for National City Corp. in Cleveland, the high-end market will continue to thrive. “The extreme high end is very healthy. They are growing in number and share of national income, and that won’t stop soon,” he says. “The baby boom generation has collected the most wealth, and they’re driving the market for high-end homes. Most are not downsizing, as previously thought. Instead, they’re trading their larger home for a smaller one that costs more. Florida’s long-range prospects are great,” says DeKaser.

Gene Rivers, co-principal of Keller Williams Realty in Tallahassee, Jacksonville and Orange Park, says interest in vacation houses remains strong. “As prices come down, all indicators are that boomers, investors and foreign buyers will re-enter the market for second homes,” he says. “But activity will be at a slower pace, with buyers who have an eye for a ‘real deal’ and a focus on long-term investing and not ‘flipping’ units.”

In general, real estate professionals will be happier than builders in 2007, according to Brad Hunter, South Florida director of Metrostudy in West Palm Beach. “The necessity buyers will be back in the market in early 2007,” he says. “However, builders won’t start to see a significant increase in sales until most of the investor supply has been absorbed.”

Rental markets are likely to strengthen in 2007, says Goodkin, as softer demand for condominiums will mean fewer conversions. Higher sales prices will also make it more difficult for renters with marginal incomes to move up to ownership. A recent report from the University of Florida’s Center for Real Estate Studies noted that 80 percent of respondents to a recent study expect rental rates in 2007 to grow at least as fast as inflation.

Throughout Florida, commercial real estate markets may experience robust growth in 2007, according to Goodkin. “With little new construction in recent years, many of these markets are now underserved,” he says. “And the state’s growing population and new-job creation will continue to add to the demand for new office, industrial and retail projects.”

No matter how you look at it, falling sales and price depreciation today will quickly go by the wayside as Florida thrives.